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Sanction Authorities and Their Application to Parent, Subsidiary and Brother and Sister Organizations

The United States Congress has consistently expanded the administrative sanction authority of the Office of Inspector General ("OIG") of the United States Department of Health and Human Services for individuals and organizations found to be in violation of the health care fraud and abuse laws. This expanded authority has raised many questions concerning the scope and application of these sanctions to parent or subsidiary or brother or sister organizations of entities who become the subject or target of a health care fraud and abuse enforcement action. The following is a review of the most prominent Federal sanction authorities and their possible application to a parent or subsidiary or brother and sister organizations.

The most draconian exclusion authority is the mandatory exclusion provisions which require the OIG to exclude from Medicare and Medicaid Program participation, for a minimum of five years, any individual or entity convicted of either:

  1. a program related crime,
  2. patient abuse or neglect,
  3. health care fraud in any health care program or
  4. convictions relating to controlled substances.

This authority is a basis for the OIG to directly sanction an individual or an organization convicted of any of the above-enumerated crimes. The mandatory exclusion of an organization under this authority, however, does not necessarily provide a basis to also sanction the organization's parent or subsidiary or brother and sister organizations.

There are three additional relevant statutory provisions, which the government may utilize in attempting to sanction an organization or its related entities under the Medicare and Medicaid programs. These statutory provisions, however, address sanctions against only entities controlled by sanctioned individuals, individuals controlling a sanctioned entity and entities contracting with sanctioned providers or suppliers under the Medicare and Medicaid programs.

  1. Entities Controlled by a Sanctioned Individual - This statutory provision provides for permissive exclusion of "any entity" with respect to which the Secretary (of HHS) determines that a person who is an officer, director, agent, or managing employee of that entity, is a person (as opposed to an entity) who has been convicted of any offense "requiring mandatory exclusion". See 42 U.S.C. 1320a-7(b)(8)(A)(ii), (B)(I). The purpose of this section is to ensure that Medicare and Medicaid programs do not directly reimburse excluded individuals through payments to entities which these individuals in effect control or own or with which they have any significant relationship. The corresponding purpose behind this statutory provision and its corresponding regulations indicate a concern for individuals that work in a specific capacity for an organization. The regulations define "person with a relationship" as a person who is an agent of the entity. An agent is defined as "any person who has expressed or implied authority to obligate or act on behalf of the entity or organization." The main legislative concern behind this sanction provision was to ensure that an individual would not elude exclusion from the Medicare and Medicaid programs by simply transferring and/or relocating to another entity which still participates in Medicare and Medicaid programs. This authority is permissive and as a practical matter exclusion of an organization under this authority can be avoided by separating the previously sanctioned individual from the organization prior to the effective date of the permissive exclusion.
  2. Individual Controlling the Sanctioned Entity - this statutory provision also provides for permissive exclusion of "any individual" who has a direct or indirect ownership or control interest in a sanctioned entity and who knows or should know of the action constituting the basis for the conviction or exclusion." This statutory provision allows the OIG to exclude individuals who have controlled a sanctioned entity as opposed to excluding an entity who is controlled by sanctioned individuals. There have not been any regulations promulgated in final form implementing the scope and effect of this statutory provision. This provision obviously has implications for an organization who may have current or future employees who may have had an ownership or control interest in a sanctioned entity and who now work for an organization or its related entities. The effect of a proposed exclusion under this provision also can presumably be avoided by having the organization separate itself from the sanctioned individual prior to the effective date of the exclusion.
  3. Contracting with a Sanctioned Provider - The most recent amendment to the section authority was passed with the Balanced Budget Act of 1997. This statutory provision authorizes civil money penalties against an individual or entity that arranges or contracts with an individual or entity that the person knows or should know has been excluded from participation in a Federal health care program. This provision is not an independent basis for imposition of an exclusion from Medicare and Medicaid programs, but is a basis for the imposition of monetary penalties pursuant to the civil money penalty law. The imposition of civil money penalties for an individual or entity contracting with a sanctioned provider is also a discretionary action by the OIG with full appeal rights prior to imposition of the penalty assessment.

These bases for exclusion and the imposition of civil money penalties are discretionary and may not be imposed unless an organization is unwilling to cure the basis for the sanction. These sanctions are primarily directed to exclusion of individuals from organizations and not organizations themselves, although such sanction authority can be applied to both individuals and organizations, unless the basis for the sanction is cured. It should be noted, at this point, that these basis for sanction are discretionary actions which the government can agree to forego in the context of any criminal and/or civil settlement agreements with any organization.

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